UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

Lennar Corporation

Delaware		95-4337490
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

700 Northwest 107th Avenue, Miami, Florida 33172
(Address of principal executive offices) (Zip Code)

(305) 559-4000
(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ      NO o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). YES o      NO o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o      NO þ

     Common stock outstanding as of June 30, 2009:

Class A			143,957,823
Class B			31,283,965

 

 

Part I. Financial Information

Item 1. Financial Statements.

Lennar Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
(unaudited)

		May 31,				November 30,
		2009				2008
ASSETS
Homebuilding:
Cash and cash equivalents		$	1,447,011				1,091,468
Restricted cash			9,604				8,828
Receivables, net			77,226				94,520
Income tax receivables			987				255,460
Inventories:
Finished homes and construction in progress			1,726,784				2,080,345
Land under development			1,994,552				1,741,407
Consolidated inventory not owned			620,648				678,338
Total inventories			4,341,984				4,500,090
Investments in unconsolidated entities			656,280				766,752
Other assets			93,769				99,802
			6,626,861				6,816,920
Financial services			656,126				607,978
Total assets		$	7,282,987				7,424,898
LIABILITIES AND STOCKHOLDERS’ EQUITY
Homebuilding:
Accounts payable		$	199,596				246,727
Liabilities related to consolidated inventory not owned			543,177				592,777
Senior notes and other debts payable			2,664,853				2,544,935
Other liabilities			760,683				834,873
			4,168,309				4,219,312
Financial services			474,173				416,833
Total liabilities			4,642,482				4,636,145
Minority interest			158,499				165,746
Stockholders’ equity:
Class A common stock of $0.10 par value per share Authorized: May 31, 2009 and November 30, 2008 — 300,000 shares; Issued: May 31, 2009 — 155,383 shares; November 30, 2008 — 140,503 shares			15,538				14,050
Class B common stock of $0.10 par value per share Authorized: May 31, 2009 and November 30, 2008 — 90,000 shares; Issued: May 31, 2009 and November 30, 2008 — 32,964 shares			3,296				3,296
Additional paid-in capital			2,097,582				1,944,626
Retained earnings			978,789				1,273,159
Treasury stock, at cost; May 31, 2009 — 11,407 Class A common shares and 1,680 Class B common shares; November 30, 2008 — 11,229 Class A common shares and 1,680 Class B common shares			(613,199	)			(612,124	)
Total stockholders’ equity			2,482,006				2,623,007
Total liabilities and stockholders’ equity		$	7,282,987				7,424,898

See accompanying notes to condensed consolidated financial statements.

Lennar Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(unaudited)

		Three Months Ended								Six Months Ended
		May 31,								May 31,
		2009				2008				2009				2008
Revenues:
Homebuilding		$	805,229				1,046,544				1,334,263				2,040,320
Financial services			86,624				81,372				150,653				150,509
Total revenues			891,853				1,127,916				1,484,916				2,190,829
Costs and expenses:
Homebuilding (1)			839,275				1,120,553				1,445,834				2,179,102
Financial services			70,085				84,386				133,622				163,215
Corporate general and administrative			30,239				29,584				58,270				64,406
Total costs and expenses			939,599				1,234,523				1,637,726				2,406,723
Equity in loss from unconsolidated entities (2)			(59,890	)			(18,919	)			(62,807	)			(41,899	)
Other income (expense), net (3)			(22,522	)			(47,874	)			(70,356	)			(69,667	)
Minority interest income (expense), net			6,520				218				8,254				(16	)
Loss before (provision) benefit for income taxes			(123,638	)			(173,182	)			(277,719	)			(327,476	)
(Provision) benefit for income taxes (4)			(1,547	)			52,266				(3,395	)			118,344
Net loss		$	(125,185	)			(120,916	)			(281,114	)			(209,132	)
Basic and diluted loss per share		$	(0.76	)			(0.76	)			(1.74	)			(1.32	)
Cash dividends per each Class A and Class B common share		$	0.04				0.16				0.08				0.32

See accompanying notes to condensed consolidated financial statements.

Lennar Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)

		Six Months Ended
		May 31,
		2009				2008
Cash flows from operating activities:
Net loss		$	(281,114	)			(209,132	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization			10,163				18,388
Amortization of discount/premium on debt, net			994				1,306
Equity in loss from unconsolidated entities, including $50.1 million and $26.9 million, respectively, of the Company’s share of SFAS 144 valuation adjustments related to assets of unconsolidated entities for the six months ended May 31, 2009 and 2008			62,807				41,899
Distributions of earnings from unconsolidated entities			1,739				7,892
Minority interest (income) expense, net			(8,254	)			16
Share-based compensation expense			15,592				14,873
Tax provision from share-based awards			—				(3,985	)
Deferred income tax benefit			—				(196,346	)
Valuation adjustments and write-offs of option deposits and pre-acquisition costs			137,471				217,384
Changes in assets and liabilities:
Increase in restricted cash			(16,162	)			(13,223	)
Decrease in receivables			235,110				1,035,694
Decrease in inventories, excluding valuation adjustments and write-offs of option deposits and pre-acquisition costs			225,014				19,298
Decrease (increase) in other assets			17,740				(1,061	)
(Increase) decrease in financial services loans held-for-sale			(38,629	)			78,394
Decrease in accounts payable and other liabilities			(109,742	)			(244,602	)
Net cash provided by operating activities			252,729				766,795
Cash flows from investing activities:
Net additions to operating properties and equipment			(649	)			(946	)
Contributions to unconsolidated entities			(118,312	)			(231,016	)
Distributions of capital from unconsolidated entities			3,707				54,442
Decrease in financial services loans held-for-investment			2,843				2,667
Purchases of investment securities			(84	)			(113,448	)
Proceeds from sales and maturities of investment securities			14,579				109,029
Net cash used in investing activities			(97,916	)			(179,272	)
Cash flows from financing activities:
Net borrowings (repayments) under financial services debt			50,924				(214,164	)
Proceeds from 12.25% senior notes due 2017			392,392				—
Debt issuance costs of 12.25% senior notes due 2017			(5,500	)			—
Redemption of 7 5/8% senior notes due 2009			(281,477	)			—
Proceeds from other borrowings			15,788				873
Principal payments on other borrowings			(52,597	)			(76,513	)
Exercise of land option contracts from an unconsolidated land investment venture			(8,075	)			(31,606	)
Receipts related to minority interests			3,558				5,005
Payments related to minority interests			(3,366	)			(3,535	)
Common stock:
Issuances			123,780				224
Repurchases			(1,075	)			(1,541	)
Dividends			(13,256	)			(51,411	)
Net cash provided by (used in) financing activities		$	221,096				(372,668	)

Lennar Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows — (Continued)
(In thousands)
(unaudited)

		Six Months Ended
		May 31,
		2009				2008
Net increase in cash and cash equivalents		$	375,909				214,855
Cash and cash equivalents at beginning of period			1,203,422				795,194
Cash and cash equivalents at end of period		$	1,579,331				1,010,049
Summary of cash and cash equivalents:
Homebuilding		$	1,447,011				882,433
Financial services			132,320				127,616
		$	1,579,331				1,010,049
Supplemental disclosures of non-cash investing and financing activities:
Non-cash contributions to unconsolidated entities		$	239				25,252
Non-cash distributions from unconsolidated entities		$	90,080				46,380

See accompanying notes to condensed consolidated financial statements.

Lennar Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)

(1) Basis of Presentation

Basis of Consolidation

     The accompanying condensed consolidated financial statements include the accounts of Lennar Corporation and all subsidiaries, partnerships and other entities in which Lennar Corporation has a controlling interest and variable interest entities (see Note 15) in which Lennar Corporation is deemed to be the primary beneficiary (the “Company”). The Company’s investments in both unconsolidated entities in which a significant, but less than controlling, interest is held and in variable interest entities in which the Company is not deemed to be the primary beneficiary, are accounted for by the equity method. All intercompany transactions and balances have been eliminated in consolidation. The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended November 30, 2008. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for the fair presentation of the accompanying condensed consolidated financial statements have been made.

     The Company has historically experienced, and expects to continue to experience, variability in quarterly results. The condensed consolidated statements of operations for the three and six months ended May 31, 2009 are not necessarily indicative of the results to be expected for the full year.

Reclassifications

     Certain prior year amounts in the condensed consolidated financial statements have been reclassified to conform with the 2009 presentation. These reclassifications had no impact on the Company’s results of operations.

Use of Estimates

     The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

(2) Operating and Reporting Segments

     The Company’s operating segments are aggregated into reportable segments in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 131, Disclosures About Segments of an Enterprise and Related Information, (“SFAS 131”) based primarily upon similar economic characteristics, geography and product type. The Company’s reportable segments consist of:

(1) Homebuilding East
(2) Homebuilding Central
(3) Homebuilding West
(4) Homebuilding Houston
(5) Financial Services

     Information about homebuilding activities in states which are not economically similar to other states in the same geographic area is grouped under “Homebuilding Other,” which is not considered a reportable segment in accordance with SFAS 131.

     Operations of the Company’s homebuilding segments primarily include the construction and sale of single-family attached and detached homes, and to a lesser extent, multi-level residential buildings, as well as the purchase, development and sale of residential land directly and through the Company’s unconsolidated entities. The Company’s reportable homebuilding segments, and all other homebuilding operations not required to be reported separately, have divisions located in:

East: Florida, Maryland, New Jersey and Virginia
Central: Arizona, Colorado and Texas ⁽¹⁾
West: California and Nevada
Houston: Houston, Texas
Other: Illinois, Minnesota, New York, North Carolina and South Carolina

     Operations of the Financial Services segment include mortgage financing, title insurance, closing services and to a much lesser extent other ancillary services (including high-speed Internet and cable television) for both buyers of the Company’s homes and others. Substantially all of the loans the Financial Services segment originates are sold in the secondary mortgage market on a servicing released, non-recourse basis; although, the Company remains liable for certain limited representations and warranties related to loan sales. The Financial Services segment operates generally in the same states as the Company’s homebuilding operations, as well as in other states.

     Evaluation of segment performance is based primarily on operating earnings (loss) before (provision) benefit for income taxes. Operating earnings (loss) for the homebuilding segments consist of revenues generated from the sales of homes and land, equity in earnings (loss) from unconsolidated entities, other income (expense), net and minority interest income (expense), net, less the cost of homes and land sold and selling, general and administrative expenses. Homebuilding operating loss for the six months ended May 31, 2009 includes the following:

	•		SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, (“SFAS 144”) valuation adjustments to finished homes, construction in progress (“CIP”) and land on which the Company intends to build homes,
	•		SFAS 144 valuation adjustments to land the Company intends to sell or has sold to third parties,
	•		Write-offs of option deposits and pre-acquisition costs related to land under option that the Company does not intend to purchase,
	•		SFAS 144 valuation adjustments related to assets of unconsolidated entities in which the Company has investments, recorded in equity in earnings (loss) from unconsolidated entities, and
	•		Accounting Principles Board Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock, (“APB 18”) valuation adjustments to the Company’s investments in unconsolidated entities, recorded in other income (expense), net.

     Financial Services operating earnings (loss) consist of revenues generated from mortgage financing, title insurance, closing services, and to a much lesser extent other ancillary services (including high-speed Internet and cable television) less the cost of such services and certain selling, general and administrative expenses incurred by the Financial Services segment.

     Each reportable segment follows the same accounting principles described in Note 1 — “Summary of Significant Accounting Policies” to the consolidated financial statements in the Company’s 2008 Annual Report on Form 10-K. Operational results of each segment are not necessarily indicative of the results that would have occurred had the segment been an independent stand alone entity during the periods presented.

     Financial information relating to the Company’s operations was as follows:

		May 31,				November 30,
(In thousands)		2009				2008
Assets:
Homebuilding East		$	1,578,175				1,588,299
Homebuilding Central			723,560				774,412
Homebuilding West			1,857,721				2,022,787
Homebuilding Houston			239,708				267,628
Homebuilding Other			833,646				849,726
Financial Services			656,126				607,978
Corporate and unallocated			1,394,051				1,314,068
Total assets		$	7,282,987				7,424,898

		Three Months Ended								Six Months Ended
		May 31,								May 31,
(In thousands)		2009				2008				2009				2008
Revenues:
Homebuilding East		$	229,047				267,783				409,745				579,802
Homebuilding Central			92,589				149,104				155,298				292,492
Homebuilding West			277,717				375,130				418,943				704,930
Homebuilding Houston			116,876				127,506				197,904				238,987
Homebuilding Other			89,000				127,021				152,373				224,109
Financial Services			86,624				81,372				150,653				150,509
Total revenues (1)		$	891,853				1,127,916				1,484,916				2,190,829
Operating earnings (loss):
Homebuilding East		$	(1,203	)			(48,042	)			(33,278	)			(71,312	)
Homebuilding Central			(18,528	)			(25,848	)			(45,130	)			(43,206	)
Homebuilding West			(88,258	)			(74,365	)			(147,203	)			(138,605	)
Homebuilding Houston			6,217				9,392				6,432				15,202
Homebuilding Other			(8,166	)			(1,721	)			(17,301	)			(12,443	)
Financial Services			16,539				(3,014	)			17,031				(12,706	)
Total operating loss			(93,399	)			(143,598	)			(219,449	)			(263,070	)
Corporate and unallocated			(30,239	)			(29,584	)			(58,270	)			(64,406	)
Loss before (provision) benefit for income taxes		$	(123,638	)			(173,182	)			(277,719	)			(327,476	)

     Valuation adjustments and write-offs relating to the Company’s operations were as follows:

		Three Months Ended								Six Months Ended
		May 31,								May 31,
(In thousands)		2009				2008				2009				2008
SFAS 144 valuation adjustments to finished homes, CIP and land on which the Company intends to build homes:
East		$	8,793				34,176				22,271				42,282
Central			2,173				17,382				10,254				19,049
West			15,626				20,140				34,024				30,060
Houston			97				—				243				112
Other			7,869				1,922				8,546				8,346
Total			34,558				73,620				75,338				99,849
SFAS 144 valuation adjustments to land the Company intends to sell or has sold to third parties:
East			1,978				1,135				2,117				2,507
Central			1,100				336				1,178				9,569
West			2,528				623				2,528				4,815
Houston			—				45				—				109
Other			—				7				—				601
Total			5,606				2,146				5,823				17,601
Write-offs of option deposits and pre-acquisition costs:
East			—				3,124				5,780				10,178
Central			—				51				82				4,130
West			1,188				843				1,703				4,207
Houston			—				480				721				745
Other			653				2,088				3,786				4,178
Total			1,841				6,586				12,072				23,438
Company’s share of SFAS 144 valuation adjustments related to assets of unconsolidated entities:
East			251				3,084				251				7,241
Central			854				—				854				158
West			48,945				4,926				48,945				18,951
Houston			—				—				—				—
Other			—				—				—				597
Total			50,050				8,010				50,050				26,947
APB 18 valuation adjustments to investments in unconsolidated entities:
East			—				9,158				2,566				10,095
Central			4,537				193				12,155				421
West			2,476				37,507				28,026				65,946
Houston			—				—				—				—
Other			—				—				1,491				34
Total			7,013				46,858				44,238				76,496
Total valuation adjustments and write-offs of option deposits and pre-acquisition costs		$	99,068				137,220				187,521				244,331

     During the second quarter of 2009, the housing market experienced an increase in sales compared to the first quarter of 2009 as more homebuyers took advantage of increased affordability, declining home prices, historically low interest rates and government stimulus programs. Despite the increase in sales, rising unemployment, increased foreclosures and tighter credit standards continue to present challenges for the industry to generate sales at a more robust pace and at stabilized pricing. Market conditions continued

to be depressed and have resulted in valuation adjustments and write-offs of option deposits and pre-acquisition costs related to land under development that the Company does not intend to purchase and higher than historical sales incentives.

     Further deterioration in the homebuilding market could cause additional pricing pressures and slower absorption, which could lead to additional valuation adjustments in the future. In addition, market conditions could cause the Company to re-evaluate its strategy regarding certain assets that could result in further valuation adjustments and/or additional write-offs of option deposits and pre-acquisition costs due to abandonment of those option contracts.

(3) Investments in Unconsolidated Entities

     Summarized condensed financial information on a combined 100% basis related to unconsolidated entities in which the Company has investments that are accounted for by the equity method was as follows:

Statements of Operations

		Three Months Ended								Six Months Ended
		May 31,								May 31,
(In thousands)		2009				2008				2009				2008
Revenues		$	53,460				219,709				119,243				617,268
Costs and expenses			580,167				293,115				695,365				790,137
Net loss of unconsolidated entities (1)		$	(526,707	)			(73,406	)			(576,122	)			(172,869	)
The Company’s share of net loss — recognized (2)		$	(59,890	)			(18,919	)			(62,807	)			(41,899	)

Balance Sheets

		May 31,				November 30,
(In thousands)		2009				2008
Assets:
Cash and cash equivalents		$	101,732				135,081
Inventories			6,310,591				7,115,360
Other assets			399,122				541,984
		$	6,811,445				7,792,425
Liabilities and equity:
Accounts payable and other liabilities		$	888,445				1,042,002
Debt			3,830,855				4,062,058
Equity of:
The Company			656,280				766,752
Others			1,435,865				1,921,613
Total equity of unconsolidated entities			2,092,145				2,688,365
		$	6,811,445				7,792,425
The Company’s equity in its unconsolidated entities			31	%			29	%

     In fiscal 2007, the Company sold a portfolio of land consisting of approximately 11,000 homesites in 32 communities located throughout the country to a strategic land investment venture with Morgan Stanley Real Estate Fund II, L.P., an affiliate of Morgan Stanley & Co., Inc., in which the Company has a 20% ownership interest and 50% voting rights. Due to the Company’s continuing involvement, the transaction did not qualify as a sale by the Company under GAAP; thus, the inventory has remained on the Company’s consolidated balance sheet in consolidated inventory not owned. As of May 31, 2009 and November 30, 2008, the portfolio of land (including land development costs) of $502.3 million and $538.4 million, respectively, is reflected as inventory in the summarized condensed financial information related to unconsolidated entities in which the Company has investments. The decrease in inventory from November 30, 2008 to May 31, 2009 resulted from valuation adjustments of $41.6 million recorded by the

land investment venture of which the Company recorded $8.3 million during the three months ended May 31, 2009 for its share of such charges.

     In June 2008, LandSource Communities Development LLC (“LandSource”) and a number of its subsidiaries commenced proceedings under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. The bankruptcy filing could result in LandSource losing some or all of the properties it owns and termination of the Company’s management agreement with LandSource, claims against the Company and a substantial reduction (or total elimination) of the Company’s 16% ownership interest in LandSource, which had a carrying value of zero at May 31, 2009. In the second quarter of 2009, the Company submitted a nonbinding proposal to acquire an interest in LandSource as well as to purchase certain of LandSource’s assets, which would also result in the settlement of all outstanding claims between LandSource and the Company. The Unsecured Creditors Committee has filed an opposition to this proposal.

     The consolidated assets and liabilities of LandSource were $1.7 billion and $1.8 billion, respectively, at May 31, 2009. At November 30, 2008, the consolidated assets and liabilities of LandSource were both $1.8 billion. These amounts represent the carrying amounts and have not been adjusted for the previously disclosed LandSource bankruptcy.

     The unconsolidated entities in which the Company has investments usually finance their activities with a combination of partner equity and debt financing. In some instances, the Company and its partners have guaranteed debt of certain unconsolidated entities.

     The summary of the Company’s net recourse exposure related to the unconsolidated entities in which the Company has investments was as follows:

		May 31,				November 30,
(In thousands)		2009				2008
Several recourse debt — repayment		$	62,434				78,547
Several recourse debt — maintenance			110,717				167,941
Joint and several recourse debt — repayment			156,277				138,169
Joint and several recourse debt — maintenance			90,508				123,051
Land seller debt and other debt recourse exposure			2,420				12,170
The Company’s maximum recourse exposure			422,356				519,878
Less: joint and several reimbursement agreements with the Company’s partners			(121,744	)			(127,428	)
The Company’s net recourse exposure		$	300,612				392,450

     During the six months ended May 31, 2009, the Company reduced its maximum recourse exposure related to unconsolidated entities by $97.5 million, of which $56.4 million was paid by the Company and $41.1 million related to the joint ventures selling inventory, dissolution of joint ventures and renegotiation of joint venture debt agreements. In addition, during the three and six months ended May 31, 2009, the Company recorded $4.2 million and $27.9 million, respectively, of obligation guarantees related to debt of certain of its joint ventures. As of May 31, 2009, $12.9 million was recorded as a liability.

     The Company’s senior unsecured revolving credit facility (the “Credit Facility”) requires the Company to effect quarterly reductions of its maximum recourse exposure related to joint ventures in which it has investments by a total of $200 million to $535 million by November 30, 2009, which it has already accomplished as of May 31, 2009. The Company must also effect quarterly reductions during its 2010 fiscal year totaling $180 million to $355 million of which the Company has already reduced it by $33.2 million. During the first six months of its 2011 fiscal year the Company must reduce its maximum recourse exposure related to joint ventures by $80 million to $275 million (see Note 9).

     If the joint ventures are unable to reduce their debt, where there is recourse to the Company, through the sale of inventory or other means, then the Company and its partners may be required to contribute capital to the joint ventures.

     The recourse debt exposure in the previous table represents the Company’s maximum recourse exposure to loss from guarantees and does not take into account the underlying value of the collateral or the other assets of the borrowers that are available to repay the debt or to reimburse the Company for any payments on its guarantees. The Company’s unconsolidated entities that have recourse debt have a significant amount of assets and equity. The summarized balance sheets of the Company’s unconsolidated entities with recourse debt were as follows:

		May 31,				November 30,
(In thousands)		2009				2008
Assets		$	1,850,941				2,846,819
Liabilities			1,166,517				1,565,148
Equity (1)			684,424				1,281,671

     In addition, in most instances in which the Company has guaranteed debt of an unconsolidated entity, the Company’s partners have also guaranteed that debt and are required to contribute their share of the guarantee payments. Some of the Company’s guarantees are repayment and maintenance guarantees. In a repayment guarantee, the Company and its venture partners guarantee repayment of a portion or all of the debt in the event of a default before the lender would have to exercise its rights against the collateral. In the event of default, if the Company’s venture partner does not have adequate financial resources to meet its obligations under the reimbursement agreement, the Company may be liable for more than its proportionate share, up to its maximum recourse exposure, which is the full amount covered by the joint and several guarantee. The maintenance guarantees only apply if the value of the collateral (generally land and improvements) is less than a specified percentage of the loan balance. If the Company is required to make a payment under a maintenance guarantee to bring the value of the collateral above the specified percentage of the loan balance, the payment would constitute a capital contribution or loan to the unconsolidated entity and increase the Company’s share of any funds the unconsolidated entity distributes.

     In many of the loans to unconsolidated entities, the Company and its joint venture partners (or entities related to them) have been required to give guarantees of completion to the lenders. Those completion guarantees may require that the guarantors complete the construction of the improvements for which the financing was obtained. If the construction is to be done in phases, very often the guarantee is to complete only the phases as to which construction has already commenced and for which loan proceeds were used. Under many of the completion guarantees, the guarantors are permitted, under certain circumstances, to use undisbursed loan proceeds to satisfy the completion obligations, and in many of those cases, the guarantors only pay interest on those funds, with no repayment of the principal of such funds required.

     During the three months ended May 31, 2009, there were no payments under completion guarantees. During the six months ended May 31, 2009, the Company made payments of $5.6 million under completion guarantees. During the three and six months ended May 31, 2009, loan paydowns, including amounts paid under the Company’s repayment guarantees, were $19.7 million and $38.5 million, respectively. Additionally, during both the three and six months ended May 31, 2009, amounts paid under the Company’s maintenance guarantees were $18.0 million. These guarantee payments are recorded primarily as contributions to the Company’s unconsolidated entities.

     In accordance with FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, as of May 31, 2009, the fair values of the maintenance guarantees, repayment guarantees and completion guarantees were not material. The Company believes that as of May 31, 2009, in the event it becomes legally obligated to perform under a guarantee of the obligation of an unconsolidated entity due to a triggering event under a guarantee, most of the time the collateral should be sufficient to repay at least a significant portion of the obligation or the Company and its partners would contribute additional capital into the venture.

     In certain instances, the Company has placed performance letters of credit and surety bonds with municipalities for its joint ventures (see Note 9).

     The total debt of the unconsolidated entities in which the Company has investments was as follows:

		May 31,				November 30,
		2009				2008
(In thousands)
The Company’s net recourse exposure		$	300,612				392,450
Reimbursement agreements from partners			121,744				127,428
The Company’s maximum recourse exposure		$	422,356				519,878
Partner several recourse		$	204,930				285,519
Non-recourse land seller debt and other debt			83,891				90,519
Non-recourse bank debt with completion guarantees – excluding LandSource			700,544				820,435
Non-recourse bank debt without completion guarantees – excluding LandSource			1,026,218				994,580
Non-recourse bank debt without completion guarantees – LandSource			1,392,916				1,351,127
Non-recourse debt to the Company			3,408,499				3,542,180
Total debt		$	3,830,855				4,062,058
The Company’s maximum recourse exposure as a % of total JV debt			11	%			13	%

(4) Income Taxes

FIN 48

     At May 31, 2009 and November 30, 2008, the Company had $99.1 million and $100.2 million, respectively, of gross unrecognized tax benefits. During the three months ended May 31, 2009, total unrecognized tax benefits decreased by $1.1 million as a result of the completion of various state examinations. Although the Company has not recognized these benefits, $25.4 million would affect the Company’s effective tax rate if the Company were to recognize these tax benefits.

     The Company expects the total amount of unrecognized tax benefits to decrease by $60.9 million within twelve months as a result of the settlement of certain tax accounting items with the IRS with respect to the prior examination cycle that carried over to the current years under examination, and as a result of the conclusion of examinations with a number of state taxing authorities. The majority of these items were previously recorded as deferred tax liabilities and the settlement will not affect the Company’s tax rate.

     At May 31, 2009, the Company had $36.5 million accrued for interest and penalties, of which $1.5 million and $3.4 million, respectively, was recorded during the three and six months ended May 31, 2009 in accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109, (“FIN 48”). At November 30, 2008, the Company had $33.5 million accrued for interest and penalties.

     The IRS is currently examining the Company’s federal income tax returns for fiscal years 2005 through 2009, and certain state taxing authorities are examining various fiscal years. The final outcome of these examinations is not yet determinable. The statute of limitations for the Company’s major tax jurisdictions remains open for examination for fiscal years 2002 through 2009.

Deferred Tax Asset

     SFAS 109, Accounting for Income Taxes, (“SFAS 109”) requires a reduction of the carrying amounts of deferred tax assets by a valuation allowance, if based on the available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed periodically based on the SFAS 109 more-likely-than-not realization threshold criterion. In the assessment for a valuation allowance, appropriate consideration is given to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, the Company’s experience with loss carryforwards not expiring unused and tax planning alternatives.

     During fiscal 2008, the Company established a full valuation allowance against its deferred tax assets totaling $730.8 million. Based upon an evaluation of all available evidence, during the three and six months ended May 31, 2009, the Company recorded an additional valuation allowance of $44.4 million and $102.2 million, respectively, against the entire amount of deferred tax assets generated as a result of its net loss during the periods. The Company’s cumulative loss position over the evaluation period and the current uncertain and volatile market conditions were significant evidence supporting the need for a valuation allowance. As a result, as of May 31, 2009, the Company’s deferred tax assets valuation allowance was $833.0 million. In future periods, the allowance could be reduced based on sufficient evidence indicating that it is more likely than not that a portion or all of the Company’s deferred tax assets will be realized.

(5) Loss Per Share

     Basic loss per share is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. As a result of the Company’s net loss during all periods presented, the weighted average number of shares of common stock used for calculating basic and diluted loss per share are the same because the inclusion of securities or other contracts to issue common stock would be anti-dilutive. Basic and diluted loss per share was calculated as follows:

		Three Months Ended								Six Months Ended
		May 31,								May 31,
(In thousands, except per share amounts)		2009				2008				2009				2008
Numerator for basic and diluted loss per share — net loss		$	(125,185	)			(120,916	)			(281,114	)			(209,132	)
Denominator for basic and diluted loss per share — weighted average shares			164,582				158,347				161,601				158,275
Basic and diluted loss per share		$	(0.76	)			(0.76	)			(1.74	)			(1.32	)

     Options to purchase 7.3 million and 4.8 million shares, respectively, of common stock were outstanding and anti-dilutive for the three months ended May 31, 2009 and 2008. Options to purchase 8.0 million and 5.4 million shares, respectively, of common stock were outstanding and anti-dilutive for the six months ended May 31, 2009 and 2008.

(6) Financial Services

     The assets and liabilities related to the Financial Services segment were as follows:

		May 31,				November 30,
(In thousands)		2009				2008
Assets:
Cash and cash equivalents		$	132,320				111,954
Restricted cash			37,363				21,977
Receivables, net (1)			158,215				133,641
Loans held-for-sale (2)			227,200				190,056
Loans held-for-investment, net			23,994				58,339
Investments held-to-maturity			4,777				19,139
Goodwill			34,046				34,046
Other (3)			38,211				38,826
		$	656,126				607,978
Liabilities:
Notes and other debts payable		$	276,708				225,783
Other (4)			197,465				191,050
		$	474,173				416,833

     At May 31, 2009, the Financial Services segment had a warehouse repurchase facility that was renewed in May 2009 and matures in June 2010 ($75 million, plus a $25 million temporary accordion feature that expired in June 2009), and a warehouse repurchase facility, which matured in June 2009 ($150 million). The Financial Services segment uses these facilities to finance its lending activities until the mortgage loans are sold to investors and expects both facilities to be renewed or replaced with other facilities when they mature. Borrowings under the lines of credit were $207.4 million and $209.5 million, respectively, at May 31, 2009 and November 30, 2008 and were collateralized by mortgage loans and receivables on loans sold to investors but not yet paid for with outstanding principal balances of $285.0 million and $281.2 million, respectively, at May 31, 2009 and November 30, 2008. If the facilities are not renewed, the borrowings under the lines of credit will be paid off by selling the mortgage loans held-for-sale to investors and by collecting on receivables on loans sold but not yet paid. Without the facilities, the Financial Services segment would have to use cash from operations and other funding sources to finance its lending activities.

     In June 2009, the Financial Services segment amended its warehouse repurchase facility, increasing its maximum aggregate commitment from $75 million to $200 million. The Financial Services segment also renewed its other warehouse repurchase facility, reducing its maximum aggregate commitment from $150 million to $100 million and extending the facility until December 2009.

     At May 31, 2009, the Financial Services segment also had an on going 60-day committed repurchase facility for $75 million. The Financial Services segment had advances under this facility totaling $69.2 million and $5.2 million, respectively, at May 31, 2009 and November 30, 2008 and were collateralized by mortgage loans and receivables on loans sold to investors but not yet paid for with outstanding principal balances of $70.7 million and $5.5 million, respectively, at May 31, 2009 and November 30, 2008. At November 30, 2008, the Financial Services segment had advances under a different conduit funding agreement totaling $10.8 million, which was collateralized by mortgage loans.

(7) Cash and Cash Equivalents

     Cash and cash equivalents as of May 31, 2009 and November 30, 2008 included $8.7 million and $9.8 million, respectively, of cash held in escrow for approximately three days.

(8) Restricted Cash

     Restricted cash consists of customer deposits on home sales held in restricted accounts until title transfers to the homebuyer, as required by the state and local governments in which the homes were sold.

(9) Senior Notes and Other Debts Payable

		May 31,				November 30,
(Dollars in thousands)		2009				2008
5.125% senior notes due 2010		$	279,918				299,877
5.95% senior notes due 2011			249,667				249,615
5.95% senior notes due 2013			347,156				346,851
5.50% senior notes due 2014			248,224				248,088
5.60% senior notes due 2015			501,522				501,618
6.50% senior notes due 2016			249,746				249,733
12.25% senior notes due 2017			392,392				—
7 5/8% senior notes due 2009			—				280,976
Mortgage notes on land and other debt			396,228				368,177
		$	2,664,853				2,544,935

     The Company’s Credit Facility consists of a $1.1 billion revolving credit facility that matures in July 2011. As of May 31, 2009, in order to be able to borrow under the Credit Facility, the Company is required to first use its cash in excess of $750 million. As of May 31, 2009, the Company had no availability to borrow under the Credit Facility.

     The Credit Facility is guaranteed by substantially all of the Company’s subsidiaries. Interest rates on outstanding borrowings are LIBOR-based, with margins determined based on changes in the Company’s credit ratings, or an alternate base rate, as described in the Credit Facility agreement. At both May 31, 2009 and November 30, 2008, the Company had no outstanding balance under the Credit Facility. However, at May 31, 2009 and November 30, 2008, $223.4 million and $275.2 million, respectively, of the Company’s total letters of credit outstanding discussed below, were collateralized against certain borrowings available under the Credit Facility.

     The Company’s performance letters of credit outstanding were $118.5 million and $167.5 million, respectively, at May 31, 2009 and November 30, 2008. The Company’s financial letters of credit outstanding were $238.7 million and $278.5 million, respectively, at May 31, 2009 and November 30, 2008. Performance letters of credit are generally posted with regulatory bodies to guarantee the Company’s performance of certain development and construction activities and financial letters of credit are generally posted in lieu of cash deposits on option contracts. Additionally, at May 31, 2009, the Company had outstanding performance and surety bonds related to site improvements at various projects (including certain projects of the Company’s joint ventures) of $912.3 million. Although significant development and construction activities have been completed related to these site improvements, these bonds are generally not released until all development and construction activities are completed. As of May 31, 2009, there were approximately $363.1 million, or 40%, of costs to complete related to these site improvements. The Company does not presently anticipate any draws upon these bonds, but if such draws occur, the Company does not believe they would have a material effect on its financial position, results of operations or cash flows.

     At May 31, 2009, the Company believes it was in compliance with its debt covenants. Under the Credit Facility agreement, the Company is required to maintain a leverage ratio of less than or equal to 55% at the end of each fiscal quarter during the Company’s 2009 fiscal year and a leverage ratio of less than or equal to 52.5% for its 2010 fiscal year and through the maturity of the Company’s Credit Facility in 2011. If the Company’s adjusted consolidated tangible net worth, as calculated per the Credit Facility agreement, falls below $1.6 billion, the Company’s Credit Facility would be reduced from $1.1 billion to

$0.9 billion. In no event may the Company’s adjusted consolidated tangible net worth, as calculated per the Credit Facility agreement, be less than $1.3 billion. As of May 31, 2009, the Company’s leverage ratio and adjusted consolidated tangible net worth, calculated per the Credit Facility agreement (which involves adjustments to GAAP financial measures, as described in Management’s Discussion and Analysis of Financial Condition and Results of Operations) were 50% and $2.1 billion, respectively.

     In addition to other requirements, the Credit Facility requires the Company to effect quarterly reductions of its maximum recourse exposure related to joint ventures in which it has investments by a total of $200 million to $535 million by November 30, 2009, which it has already accomplished as of May 31, 2009. The Company must also effect quarterly reductions during its 2010 fiscal year totaling $180 million to $355 million of which the Company has already reduced it by $33.2 million. During the first six months of its 2011 fiscal year the Company must reduce its maximum recourse exposure related to joint ventures by $80 million to $275 million.

     If the joint ventures are unable to reduce their debt, where there is recourse to the Company, through the sale of inventory or other means, then the Company and its partners may be required to contribute capital to the joint ventures.

     In March 2009, the Company retired its $281 million 7 5/8% senior notes due March 2009 for 100% of the outstanding principal amount, plus accrued and unpaid interest as of the maturity date.

     In April 2009, the Company issued $400 million of 12.25% senior notes due 2017 (the “12.25% Senior Notes”) at a price of 98.098% in a private placement. Proceeds from the offering, after payment of initial purchaser’s discount and expenses, are $386.7 million. The Company added the proceeds to the Company’s working capital to be used for general corporate purposes, which may include the repayment or repurchase of its near-term maturities or of debt of its joint ventures that it has guaranteed. Interest on the 12.25% Senior Notes is due semi-annually. The 12.25% Senior Notes are unsecured and unsubordinated, and are guaranteed by substantially all of the Company’s subsidiaries. At May 31, 2009, the carrying amount of the 12.25% Senior Notes was $392.4 million.

     In connection with the private placement of the 12.25% Senior Notes, the Company agreed that within 120 days it would offer to exchange substantially identical 12.25% senior notes that have been registered under the Securities Act of 1933 for the 12.25% Senior Notes that the Company issued under the private placement. The Company has filed a registration statement with the SEC for the purposes of exchanging the 12.25% Senior Notes.

(10) Product Warranty

     Warranty and similar reserves for homes are established at an amount estimated to be adequate to cover potential costs for materials and labor with regard to warranty-type claims expected to be incurred subsequent to the delivery of a home. Reserves are determined based on historical data and trends with respect to similar product types and geographical areas. The Company regularly monitors the warranty reserve and makes adjustments to its pre-existing warranties in order to reflect changes in trends and historical data as information becomes available. Warranty reserves are included in other liabilities in the accompanying condensed consolidated balance sheets. The activity in the Company’s warranty reserve was as follows:

		Three Months Ended								Six Months Ended
		May 31,								May 31,
(In thousands)		2009				2008				2009				2008
Warranty reserve, beginning of period		$	139,696				152,942				129,449				164,842
Warranties issued during the period			7,888				11,584				13,281				21,946
Adjustments to pre-existing warranties from changes in estimates			9,704				(5,651	)			28,780				(2,012	)
Payments			(15,114	)			(25,933	)			(29,336	)			(51,834	)
Warranty reserve, end of period		$	142,174				132,942				142,174				132,942

     Adjustments to pre-existing warranties from changes in estimates for the three and six months ended May 31, 2009 include an adjustment for warranty issues related to drywall manufactured in China and purchased and installed by various of the Company’s subcontractors. Defective Chinese drywall appears to be an industry-wide issue as other homebuilders have publicly disclosed that they are experiencing similar issues with defective Chinese drywall.

     As of May 31, 2009, the Company had identified approximately 400 homes delivered in Florida primarily during its 2006 and 2007 fiscal years that are confirmed to have defective Chinese drywall and resulting damage. This represents a small percentage of homes the Company delivered in Florida (2.1%) and nationally (0.5%) during those fiscal years in the aggregate.

     Based on its efforts to date, the Company has not identified defective Chinese drywall in homes delivered by the Company outside of Florida. The Company is currently unable to reasonably estimate its future exposure relating to defective Chinese drywall. However, the Company is continuing its investigation of homes it delivered during the relevant time period in order to determine whether there are additional homes, not yet inspected, with defective Chinese drywall and resulting damage. The outcome of the Company’s inspections might require it to increase its warranty reserve in the future.

      Through May 31, 2009, the Company has accrued $39.8 million of warranty reserves related to homes identified as having defective Chinese drywall. As of May 31, 2009, the warranty reserve, net of payments, was $34.4 million. The Company has a $20.7 million receivable for covered damages under its insurance coverage relative to the cost it expects to incur in remedying the homes confirmed to have defective Chinese drywall and resulting damage. The Company is seeking reimbursement from its subcontractors, insurers and others for costs the Company expects to incur to investigate and repair defective Chinese drywall and resulting damage.

(11) Stockholders’ Equity

     The Company has a stock repurchase program which permits the purchase of up to 20 million shares of its outstanding common stock. There were no share repurchases during the three and six months ended May 31, 2009. As of May 31, 2009, 6.2 million shares of common stock can be repurchased in the future under the program. Treasury stock increased by 0.1 million and 0.2 million common shares, respectively, during the three and six months ended May 31, 2009, in connection with activity related to the Company’s equity compensation plan and forfeitures of restricted stock.

     During April 2009, the Company entered into distribution agreements (equity draw-down program) with J.P. Morgan Securities, Inc., Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Deutsche Bank Securities Inc., relating to an offering of the Company’s Class A common stock into the market from time to time for an aggregate of up to $275 million. As of May 31, 2009, the Company had sold a total of 12.8 million shares of its Class A common stock under the equity offering for gross proceeds of $126.3 million, or an average of $9.86 per share. After compensation to the distributors of $2.5 million, the Company received net proceeds of $123.8 million. The Company will use the proceeds from the offering for general corporate purposes which may include acquisitions.

(12) Share-Based Payment

     During the three months ended May 31, 2009 and 2008, compensation expense related to the Company’s share-based payment awards was $7.9 million and $8.5 million, respectively, of which $3.0 million and $3.5 million, respectively, related to stock options and $4.9 million and $5.0 million, respectively, related to awards of restricted common stock (“nonvested shares”). During the six months ended May 31, 2009 and 2008, compensation expense related to the Company’s share-based payment awards was $15.6 million and $14.9 million, respectively, of which $6.0 million and $6.9 million, respectively, related to stock options and $9.6 million and $8.0 million, respectively, related to nonvested

shares. During the three months ended May 31, 2009, the Company granted an immaterial amount of stock options and did not issue any nonvested shares. During the three months ended May 31, 2008, the Company granted an immaterial amount of stock options and issued an immaterial amount of nonvested shares. During the six months ended May 31, 2009, the Company granted an immaterial amount of stock options and did not issue any nonvested shares. During the six months ended May 31, 2008, the Company granted an immaterial amount of stock options and issued 1.1 million nonvested shares.

(13) Comprehensive Loss

     Comprehensive loss represents changes in stockholders’ equity from non-owner sources. The components of comprehensive loss were as follows:

		Three Months Ended								Six Months Ended
		May 31,								May 31,
(In thousands)		2009				2008				2009				2008
Net loss		$	(125,185	)			(120,916	)			(281,114	)			(209,132	)
Unrealized gain (loss) on Company’s portion of unconsolidated entity’s interest rate swap liability, net of tax			—				848				—				(751	)
Comprehensive loss		$	(125,185	)			(120,068	)			(281,114	)			(209,883	)

(14) Fair Value Disclosures

     SFAS No. 157, Fair Value Measurements, (“SFAS 157”), provides a framework for measuring fair value, expands disclosures about fair value measurements and establishes a fair value hierarchy which prioritizes the inputs used in measuring fair value summarized as follows:

     Level 1: Fair value determined based on quoted prices in active markets for identical assets.

     Level 2: Fair value determined using significant other observable inputs.

     Level 3: Fair value determined using significant unobservable inputs.

     The Company’s financial instruments measured at fair value on a recurring basis are all within the Company’s Financial Services segment and are summarized below:

		Fair Value				Fair Value at
Financial Instruments		Hierarchy				May 31, 2009
(Dollars in thousands)
Loans held-for-sale (1)		Level 2				$	227,200
Mortgage loan commitments		Level 2					1,557
Forward contracts		Level 2					2,756

     SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, (“SFAS 159”) permits entities to measure various financial instruments and certain other items at fair value on a contract-by-contract basis. The Company elected the fair value option for its loans held-for-sale for mortgage loans originated subsequent to February 29, 2008, and as a result, the Company’s loans held-for-sale as of May 31, 2009 are carried at fair value. Management believes carrying loans held-for-sale at fair value improves financial reporting by mitigating volatility in reported earnings caused by measuring the fair value of the loans and the derivative instruments used to economically hedge them without having to apply complex hedge accounting provisions. In addition, the Company also applies Staff Accounting Bulletin (“SAB”) No. 109, Written Loan Commitments Recorded at Fair Value through Earnings, (“SAB 109”) to its rights to service a mortgage loan and recognizes revenue upon entering into an interest rate lock loan commitment with a borrower. The fair value of these servicing rights is included in the Company’s loans held-for-sale balance as of May 31, 2009. Fair value of the servicing rights is determined based on quoted market prices, where available, or the prices for other mortgage whole loans with similar characteristics.

     The Company’s assets measured at fair value on a nonrecurring basis are those assets for which the Company has recorded valuation adjustments and write-offs during the current period. The assets measured at fair value on a nonrecurring basis are all within the Company’s Homebuilding operations and are summarized below:

Non-financial Assets		Fair Value Hierarchy				Fair Value at May 31, 2009				Total Losses (1)
(Dollars in thousands)
Finished homes and construction in progress (2)		Level 3				$	94,452				(34,619	)
Land under development (3)		Level 3					10,233				(5,545	)
Investments in unconsolidated entities (4)		Level 3					(4,479	)			(7,013	)

     Finished homes and construction in progress and land under development are included within inventories. Inventories are stated at cost unless the inventory within a community is determined to be impaired, in which case the impaired inventory is written down to fair value. The Company reviews its inventory for impairment by evaluating each community during each reporting period. The inventory within each community is categorized as finished homes and construction in progress or land under development based on the development stage of the community. There were 435 and 588 active communities as of May 31, 2009 and May 31, 2008, respectively, each of which was reviewed for impairment. SFAS 144 requires that if the undiscounted cash flows expected to be generated by an asset are less than its carrying amount, an impairment charge should be recorded to write-down the carrying amount of such asset to its fair value.

     The Company estimates the fair value of its communities using a discounted cash flow model. In determining the projected cash flows of a community, the Company primarily uses estimates related to market supply and demand, product type by community, homesite sizes, sales pace, sales prices, sales incentives, construction costs, sales and marketing expenses, the local economy, competitive conditions, labor costs, costs of materials and other factors for that particular community. Every homebuilding division evaluates the historical performance of each of its communities and the current trends in the market and economy impacting the community and its surrounding areas. These trends are analyzed for each of the estimates listed above. For example, since the start of the downturn in the housing market, the Company has reduced its construction costs in many communities, and this reduction in construction costs, in addition to changes in product type, has impacted future estimated cash flows. Using all of the trend information available, the division provides its best estimate of projected cash flows for each community. While many of the estimates are calculated based on trends, all estimates are subjective and change from market to market; and from community to community as market and economic conditions change. The determination of fair value also requires discounting the estimated cash flows at a rate the Company believes a market participant would determine to be commensurate with the inherent risks associated with the assets and related estimated cash flow streams. The discount rate used in determining each asset’s fair value depends on the community’s projected life and development stage. The Company generally uses a discount rate of approximately 20% depending on the perceived risks associated with a community’s cash flow streams relative to its inventory.

     The Company evaluates each of its investments in unconsolidated entities for impairment during each reporting period in accordance with APB 18. A series of operating losses of an investee or other factors including age of venture, intent and ability for the Company to retain its investment in the entity, financial condition and long-term prospects of the entity and relationships with the other partners and banks, may indicate that a decrease in the value of the Company’s investment in the unconsolidated entity has occurred which is other-than-temporary. The amount of impairment recognized is the excess of the investment’s carrying amount over its estimated fair value. If the Company determines that its investment in the unconsolidated entity, or a portion of this investment could not be recovered through disposition, the Company includes these losses in other income (expense), net. The evaluation of the Company’s investment in an unconsolidated entity includes two critical assumptions: (1) projected future distributions from the unconsolidated entity and (2) discount rates applied to the future distributions. Inventory of the Company’s unconsolidated entities is also reviewed for potential impairment in accordance with SFAS 144. The unconsolidated entities generally use discount rates of approximately 20% in their SFAS 144 reviews for impairment, subject to the perceived risks associated with the community’s cash flow stream relative to its inventory. If a valuation adjustment is recorded by an unconsolidated entity in accordance with SFAS 144, the Company’s proportionate share is reflected in the Company’s equity in loss from unconsolidated entities with a corresponding decrease to its investments in unconsolidated entities.

(15) Consolidation of Variable Interest Entities

     The Company follows FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities, (“FIN 46R”), which requires the consolidation of certain entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity.

Unconsolidated Entities

     At May 31, 2009, the Company had investments in and advances to unconsolidated entities established to acquire and develop land for sale to the Company in connection with its homebuilding operations, for sale to third parties or for the construction of homes for sale to third-party homebuyers. The Company evaluated all agreements under FIN 46R that were entered into or had reconsideration events during the six months ended May 31, 2009, and it consolidated entities that at May 31, 2009 had total combined assets and liabilities of $19.7 million and $21.1 million, respectively.

     At May 31, 2009 and November 30, 2008, the Company’s recorded investment in unconsolidated entities was $656.3 million and $766.8 million, respectively. The Company’s estimated maximum exposure to loss with regard to unconsolidated entities is primarily its recorded investment in these entities and the exposure under the guarantees discussed in Note 3.

Option Contracts

     The Company has access to land through option contracts, which generally enables it to control portions of properties owned by third parties (including land funds) and unconsolidated entities until the Company has determined whether to exercise the option.

     A majority of the Company’s option contracts require a non-refundable cash deposit or irrevocable letter of credit based on a percentage of the purchase price of the land. The Company’s option contracts sometimes include price adjustment provisions, which adjust the purchase price of the land to its approximate fair value at the time of acquisition, or are based on the fair value of the land at the time of takedown.

     The Company’s investments in option contracts are recorded at cost unless those investments are determined to be impaired, in which case the Company’s investments are written down to fair value. The Company reviews option contracts for impairment during each reporting period. The most significant indicator of impairment is a decline in the fair value of the optioned property such that the purchase and

development of the optioned property would no longer meet the Company’s targeted return on investment. Such declines could be caused by a variety of factors including increased competition, decreases in demand or changes in local regulations that adversely impact the cost of development. Changes in any of these factors would cause the Company to re-evaluate the likelihood of exercising its land options.

     Some option contracts contain a predetermined take-down schedule for the optioned land parcels. However, in almost all instances, the Company is not required to purchase land in accordance with those take-down schedules. In substantially all instances, the Company has the right and ability to not exercise its option and forfeit its deposit without further penalty, other than termination of the option and loss of any unapplied portion of its deposit and pre-acquisition costs. Therefore, in substantially all instances, the Company does not consider the take-down price to be a firm contractual obligation.

     When the Company does not intend to exercise an option, it writes off any unapplied deposit and pre-acquisition costs associated with the option contract. For the three months ended May 31, 2009 and 2008, the Company wrote-off $1.8 million and $6.6 million, respectively, of option deposits and pre-acquisition costs related to land under option that it does not intend to purchase. For the six months ended May 31, 2009 and 2008, the Company wrote off $12.1 million and $23.4 million, respectively, of option deposits and pre-acquisition costs related to land under option that it does not intend to purchase.

     The table below indicates the number of homesites owned and homesites to which the Company had access through option contracts with third parties (“optioned”) or unconsolidated joint ventures in which the Company has investments (“JVs”) (i.e., controlled homesites) at May 31, 2009 and 2008:

		Controlled Homesites												Owned				Total
May 31, 2009		Optioned				JVs				Total				Homesites				Homesites
East			7,884				2,985				10,869				25,664				36,533
Central			1,422				3,971				5,393				16,502				21,895
West			29				11,743				11,772				19,148				30,920
Houston			1,125				2,254				3,379				6,693				10,072
Other			506				677				1,183				8,057				9,240
Total homesites			10,966				21,630				32,596				76,064				108,660

		Controlled Homesites												Owned				Total
May 31, 2008		Optioned				JVs				Total				Homesites				Homesites
East			9,961				9,926				19,887				25,938				45,825
Central			1,750				6,277				8,027				14,968				22,995
West			1,263				26,123				27,386				16,052				43,438
Houston			1,312				2,864				4,176				8,001				12,177
Other			756				754				1,510				8,376				9,886
Total homesites			15,042				45,944				60,986				73,335				134,321

     The Company evaluated all option contracts for land when entered into or upon a reconsideration event to determine whether it is the primary beneficiary of certain of these option contracts. Although the Company does not have legal title to the optioned land, under FIN 46R, the Company, if it is deemed to be the primary beneficiary, is required to consolidate the land under option at the purchase price of the optioned land. During the six months ended May 31, 2009, the effect of the consolidation of these option contracts was an increase of $3.2 million to consolidated inventory not owned with a corresponding increase to liabilities related to consolidated inventory not owned in the accompanying condensed consolidated balance sheet as of May 31, 2009. This increase was offset by the Company exercising its options to acquire land under certain contracts previously consolidated resulting in a net decrease in consolidated inventory not owned of $57.7 million for the six months ended May 31, 2009. To reflect the purchase price of the inventory consolidated under FIN 46R, the Company reclassified $0.3 million of

related option deposits from land under development to consolidated inventory not owned in the accompanying condensed consolidated balance sheet as of May 31, 2009. The liabilities related to consolidated inventory not owned primarily represent the difference between the option exercise prices for the optioned land and the Company’s cash deposits.

     The Company’s exposure to loss related to its option contracts with third parties and unconsolidated entities consisted of its non-refundable option deposits and pre-acquisition costs totaling $182.1 million and $191.2 million, respectively, at May 31, 2009 and November 30, 2008. Additionally, the Company posted $65.2 million and $89.5 million, respectively, of letters of credit in lieu of cash deposits under certain option contracts as of May 31, 2009 and November 30, 2008.

(16) New Accounting Pronouncements

     In September 2006, the FASB issued SFAS 157. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 was effective for the Company’s financial assets and liabilities on December 1, 2007. The FASB deferred the provisions of SFAS 157 relating to nonfinancial assets and liabilities until the Company’s fiscal year beginning December 1, 2008. SFAS 157 did not materially affect how the Company determines fair value, but has resulted in certain additional disclosures (see Note 14).

     In December 2008, the FASB issued FASB Staff Position (“FSP”) FAS 140-4 and FIN 46(R)-8, Disclosure by Public Entities (Enterprises) About Transfers of Financial Assets and Interests in Variable Interest Entities. The purpose of this FSP is to promptly improve disclosures by public companies until the pending amendments to SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities, and FIN 46R by requiring public companies to provide additional disclosures regarding their involvement about the transferor’s continuing involvement with transferred financial assets. It also amends FIN 46R by requiring public companies to provide additional disclosures regarding their involvement with variable interest entities. This FSP was effective for the Company’s fiscal year beginning December 1, 2008. The FSP did not have a material effect on the Company’s condensed consolidated financial statements.

     In March 2008, the FASB issued SFAS No. 161, Disclosures About Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133, (“SFAS 161”). SFAS 161 expands the disclosure requirements in SFAS 133 regarding an entity’s derivative instruments and hedging activities. SFAS 161 was effective for the Company’s fiscal year beginning December 1, 2008. The adoption of SFAS 161 did not have a material effect on the Company’s condensed consolidated financial statements.

     In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, (“FSP 107-1”). FSP 107-1 requires that the fair value disclosures required for all financial instruments within the scope of SFAS No. 107, Disclosures about Fair Value of Financial Instruments, be included in interim financial statements. In addition, FSP 107-1 requires public companies to disclose the method and significant assumptions used to estimate the fair value of those financial instruments and to discuss any changes of method or assumptions, if any, during the reporting period. FSP 107-1 is effective for the Company’s quarter ending August 31, 2009. The FSP will not have a material effect on the Company’s condensed consolidated financial statements, but will result in additional disclosures.

     In May 2009, the FASB issued SFAS No. 165, Subsequent Events, (“SFAS 165”). SFAS 165 establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Among other things, SFAS 165 requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. SFAS 165 is effective for the Company’s quarter ending August 31, 2009. This statement will not have a material effect on the Company’s condensed consolidated financial statements.

     In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R), (“SFAS 167”). SFAS 167 amends the consolidation guidance applicable to variable interest entities and the definition of a variable interest entity, and requires enhanced disclosures to provide more information

about an enterprise’s involvement in a variable interest entity. This statement also requires ongoing assessments of whether an enterprise is the primary beneficiary of a variable interest entity. SFAS 167 is effective for the Company’s fiscal year beginning December 1, 2009. The Company is currently reviewing the effect of SFAS 167 on its condensed consolidated financial statements.

     In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162, (“SFAS 168”). SFAS 168 establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. SFAS 168 is effective for the Company’s November 30, 2009 consolidated financial statements. SFAS 168 does not change GAAP and will not have a material impact on the Company’s consolidated financial statements.

(17) Supplemental Financial Information

     The Company’s obligations to pay principal, premium, if any, and interest under its Credit Facility, 5.125% senior notes due 2010, 5.95% senior notes due 2011, 5.95% senior notes due 2013, 5.50% senior notes due 2014, 5.60% senior notes due 2015, 6.50% senior notes due 2016 and 12.25% senior notes due 2017 are guaranteed by substantially all of the Company’s subsidiaries. The guarantees are full and unconditional and the guarantor subsidiaries are 100% directly or indirectly owned by Lennar Corporation. The guarantees are joint and several, subject to limitations as to each guarantor designed to eliminate constructive fraudulent conveyance concerns. The Company has determined that separate, full financial statements of the guarantors would not be material to investors and, accordingly, supplemental financial information for the guarantors is presented as follows:

Condensed Consolidating Balance Sheet
May 31, 2009

		Lennar				Guarantor				Non-Guarantor
(In thousands)		Corporation				Subsidiaries				Subsidiaries				Eliminations				Total
ASSETS
Homebuilding:
Cash and cash equivalents, restricted cash, receivables, net and income tax receivables		$	1,345,564				178,742				10,522				—				1,534,828
Inventories			—				3,812,212				529,772				—				4,341,984
Investments in unconsolidated entities			—				629,622				26,658				—				656,280
Other assets			30,576				54,663				8,530				—				93,769
Investments in subsidiaries			4,008,303				554,842				—				(4,563,145	)			—
			5,384,443				5,230,081				575,482				(4,563,145	)			6,626,861
Financial services			—				162,859				493,267				—				656,126
Total assets		$	5,384,443				5,392,940				1,068,749				(4,563,145	)			7,282,987
LIABILITIES AND STOCKHOLDERS’ EQUITY
Homebuilding:
Accounts payable and other liabilities		$	245,179				689,904				25,196				—				960,279
Liabilities related to consolidated inventory not owned			—				543,177				—				—				543,177
Senior notes and other debts payable			2,268,625				182,303				213,925				—				2,664,853
Intercompany			388,633				(95,175	)			(293,458	)			—				—
			2,902,437				1,320,209				(54,337	)			—				4,168,309
Financial services			—				64,428				409,745				—				474,173
Total liabilities			2,902,437				1,384,637				355,408				—				4,642,482
Minority interest			—				—				158,499				—				158,499
Stockholders’ equity			2,482,006				4,008,303				554,842				(4,563,145	)			2,482,006
Total liabilities and stockholders’ equity		$	5,384,443				5,392,940				1,068,749				(4,563,145	)			7,282,987

(17) Supplemental Financial Information – (Continued)

Condensed Consolidating Balance Sheet
November 30, 2008

		Lennar				Guarantor				Non-Guarantor
(In thousands)		Corporation				Subsidiaries				Subsidiaries				Eliminations				Total
ASSETS
Homebuilding:
Cash and cash equivalents, restricted cash, receivables, net and income tax receivables		$	1,263,623				165,060				21,593				—				1,450,276
Inventories			—				3,975,084				525,006				—				4,500,090
Investments in unconsolidated entities			—				751,613				15,139				—				766,752
Other assets			30,420				64,515				4,867				—				99,802
Investments in subsidiaries			4,314,255				635,413				—				(4,949,668	)			—
			5,608,298				5,591,685				566,605				(4,949,668	)			6,816,920
Financial services			—				8,332				599,646				—				607,978
Total assets		$	5,608,298				5,600,017				1,166,251				(4,949,668	)			7,424,898
LIABILITIES AND STOCKHOLDERS’ EQUITY
Homebuilding:
Accounts payable and other liabilities		$	269,457				700,411				111,732				—				1,081,600
Liabilities related to consolidated inventory not owned			—				592,777				—				—				592,777
Senior notes and other debts payable			2,176,758				130,126				238,051				—				2,544,935
Intercompany			539,076				(140,463	)			(398,613	)			—				—
			2,985,291				1,282,851				(48,830	)			—				4,219,312
Financial services			—				2,911				413,922				—				416,833
Total liabilities			2,985,291				1,285,762				365,092				—				4,636,145
Minority interest			—				—				165,746				—				165,746
Stockholders’ equity			2,623,007				4,314,255				635,413				(4,949,668	)			2,623,007
Total liabilities and stockholders’ equity		$	5,608,298				5,600,017				1,166,251				(4,949,668	)			7,424,898